What is Currently Not Collectible status?
If you’re unable to make tax payments due to financial hardship, you can postpone them until you’re able to do so. When your account is placed on currently non collectable status, the IRS has agreed to stop attempting to collect unpaid taxes. This occurs once the IRS obtains proof that the taxpayer is unable to pay their tax debt.
Being placed on currently not collectible status is an important option for taxpayers who simply cannot afford to pay the IRS back taxes and need some “breathing room” while they sort out their finances. This does not eliminate any tax debt owed to the IRS, nor does it constitute an attempt to settle tax debt. The Internal Revenue Service (IRS) may report your account as “currently not collectible” if you meet certain criteria.
You must convince the IRS that your monthly income is insufficient to cover your necessary living expenses to qualify for currently not collectable status. To prove your claim of financial hardship, the IRS will want you to provide financial information. To qualify, you must have practically no money left over after paying necessary living expenditures such as rent, utilities, and groceries each month.
What happens when your account becomes Currently Not Collectible
If the IRS determines that you are unable to pay your taxes, your account will be marked as Currently not collectable (CNC). Your earnings will not be garnished, nor will your bank accounts be seized. Furthermore, you will not be obliged to get into an installment agreement. When the IRS finds a taxpayer ineligible for collection, all collection actions, including garnishments and levies, must cease.
While determining whether you qualify for currently not collectible status is ultimately determined by calculating your disposable income, having the help of an experienced Enrolled Agent in determining what qualifies as “income” and “necessary living expenses” under the tax law will be beneficial to you.
How Does the Status of Currently-Not-Collectible Work?
The IRS’s currently-not-collectible status gives you time to figure out a way to pay your tax debt without facing immediate collection. Your tax debt will not go away, and interest and late penalties will continue to accrue on the past-due tax sum.
Any future tax refunds you might be due will be held by the IRS until your balance is paid off. This is called a “refund offset”.
Your credit record may be affected if the IRS files a Notice of Federal Tax Lien against your property.
If you’re not sure if you’re eligible for the status of currently not collectible, talk to an enrolled agent or another tax specialist. If you don’t qualify, your enrolled agent can advise you on different ways to handle your tax burden.
The IRS will continue to assess your file, and because the CNC status is temporary, it may be removed if your financial condition improves.
Requirements for Not-Currently-Collectible Status
To achieve the status of currently not collectible, paying your taxes must cause you severe difficulty. This means that paying anything toward your tax obligation will force you to forego certain basic necessities.
The IRS will look to determine whether you match one or more of the following criteria to see if you qualify:
- After paying your basic living expenditures, you have little or no money left at the end of the month.
- Your only source of income is Social Security, welfare, or unemployment compensation.
- The IRS has only a few years remaining to collect your tax bill under the 10-year statute of limitations.
- You have a yearly income of less than $84,000.
- Your living expenses are compliant with IRS regulations.
- You’re out of work and have no alternative means of support.
The IRS will assign a “closure code” to your account once they accept you for currently-not-collectible status. This will include details on when the IRS should re-examine your file to see if your financial status has improved depending on your annual income. Find out what income level will elicit a follow-up from the IRS and when.
The length of time you can stay in CNC depends on how much money you make and how rapidly your financial condition improves.
See if you qualify for currently not collectible status.
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